The paper focuses on IKEA case study to understand how it uses it cost leadership strategy in the market. A company’s relative position in the market and within the industry largely determines the level of profitability. According to Lebherz and Hartmann (2017), there are strategies which are combined with the scope of activities essential in attaining competitive advantage. These events lead to generic strategies namely differentiation, cost leadership, and focus. Ikea uses cost leadership strategies to ensure and enhance its competitive ability in the market. The market approach in different countries is based on the culture and other social aspects.
IKEA Cost Leadership Strategy
IKEA is one of the largest furniture firm operating in the international business environment that sell furniture to the consumers who assemble them at home for use. The company was founded more than half a century ago in Sweden and has been successful in carrying out business for the last 74 years (Block et al. 2015). The main question to be explored is how did the IKEA group operate and gain a market dominance for quite a considerable period? What strategies has the management employed to maintain and enhance the success? Looking for Porter’s Generic Strategies that were proposed by Michael Porter, the group follows the Cost Leadership Strategy which is visible in its operations.
The company is driven by a simple and clear mission which includes selling a range of furniture products and accessories at a fair and reasonable price at the reach of various demographic groups (Jin-Yuan et al. 2016). This means that the designs are excellent and fashionable but lower price which makes many people afford them. By proving a broad range of assortment with excellent functionality, the buyers can find all they want under one roof, and that is why consumers find everything at IKEA (Block et al. 2015). Therefore, the success of the group is founded on the relatively simple idea that includes reducing the pricing to the customers.
When a firm wants to achieve and follow cost leadership strategy, it implements activities that reduce the price of the products. In regard to this, Ikea, a Swedish furniture retailer has revolutionized the industry through the provision of cheap and stylish furniture which fetch higher prices in other countries and firms. The company can sell the product at lower prices because the products are sourced in low-wage countries and provision of basic level service to the consumers (Johnson, Scholes & Whittington, 2008). Ikea does not deliver or assemble the finished furniture; the buyers collect them in a particular warehouse, and assemble them at home. Such strategy makes it capable for the firm to offer the product at lower prices and attract customers from various categories (Lebherz & Hartmann, 2017).
In conclusion, IKEA group use cost leadership strategy to provide products of excellent designs at considerably low prices compared to that of the competitors. This strategy has been successful in offering innovative design to attract and retain consumers. Further, IKEA approach has been replicated in many countries, and it has enabled increase the brand awareness to the market. Besides it is more than a furniture merchant as it also offers lifestyle to consumers across the globe.
Block, J.H., Kohn, K., Miller, D. and Ullrich, K., 2015. Necessity entrepreneurship and competitive strategy. Small Business Economics, 44(1), pp.37-54.
Jin-Yuan, Y.U.A.N., Miao, W.A.N.G. and Xiao-Ming, Y.U.A.N., 2016. Analysis for Cost Leadership Strategy and Core Competitiveness Points of IKEA CO. DEStech Transactions on Economics and Management, (iceme-ebm).
Johnson, G., Scholes, K. and Whittington, R., 2008. Exploring corporate strategy: text & cases. Pearson Education.
Lebherz, M. and Hartmann, J., 2017. Applying the value grid model to the furniture industry: the example of IKEA.